Cost Insurance and Freight: How does CIF work?
Cost, Insurance, and Freight, also known as CIF, is one of the 11 Incoterms coined by the International Chamber of Commerce (ICC) to ease international trade. The CIF Incoterm was updated in 2020 and is used for shipping maritime cargo. Learn more about CIF shipping, prices and insurance coverage and find out the meaning of CIF in import and export.
Find the best solution for your cargo shipping needs
CIF Incoterm definition – CIF Shipping for sea freight
The CIF shipping term means that the seller is obligated to cover the cost, insurance and freight transport of goods to the named port of destination. The seller is responsible for clearing the goods for export, providing any type of documents or export licenses required for transport and packing the goods for transport. The buyer is responsible for unloading the goods at the port of destination, as well as for clearing the goods for import.
The CIF Incoterm is one of the 2020 Incoterms that is applicable only to sea freight.
Seller’s and buyer’s responsibilities under CIF shipping terms
The CIF Incoterms of 2020 determines the responsibilities of the seller and the buyer in an international sea cargo contract.
Seller’s responsibilities in Cost, Insurance, and Freight
- Export licenses, taxes, permits and customs clearance in the country of origin.
- Packaging the cargo for shipping.
- Transport and loading fees until the port of destination.
- Insurance coverage until the buyer’s port of destination.
- Cover destruction or damage until the goods are loaded on the ship.
- Provide proof of loading and delivery.
Buyer’s responsibilities in Cost, Insurance, and Freight
- Unloading the goods at the terminal.
- Transporting the goods from the terminal to the delivery site.
- Import taxes and clearance.
- Import clearance procedures.
- Charges for transport from the delivery site to the final hub, warehouse or buyer’s address.
See other Incoterms for sea freight
CIF INSURANCE COVERAGE
CIF insurance coverage for sea cargo
When using the delivery term CIF, the seller is responsible for adding insurance to the cargo. Usually, the CIF insurance coverage is based on minimum coverage. The final CIF cost includes the merchandise price plus 10% of the commercial value of the goods.
Although the CIF shipping term establishes that the seller must purchase insurance, the risk of the goods transfers from the seller to the buyer when they are loaded on the vessel at the port of origin. Until the goods are loaded on the vessel, the seller is liable for any loss or damages.
SHIPPING COSTS
CIF shipping costs and prices
“CIF price” is quite a common term in international sea freight contracts. It is commonly used by exporters who also operate as freight forwarders because the seller is responsible for paying for the transport of goods under the CIF shipping term. The buyer will be invoiced for the commercial cost of the goods, plus shipping and insurance, without having to organise the transport themselves.
For example, a company in Ireland (the seller) sells 100k units of merchandise under CIF shipping terms to an American company (the buyer). The Irish company is responsible for arranging and paying for the transport, as well as covering the goods with basic insurance:
- The Irish company buys insurance for the goods, arranges, and pays for the transport with a freight forwarder until the named port of destination.
- The seller clears the goods for export, packs and transports them to the port of origin. The seller is liable for the goods from their hub or warehouse until they are on board.
- Once the goods are on board, the risk transfer to the US company. If anything happens, they must contact the seller’s insurance company to start a claim.
- The US company unloads goods at the port terminal and pays import taxes.
CUSTOMS CLEARANCE
Who pays for customs clearance when shipping under the CIF Incoterm?
Following the Cost, Freight, and Insurance, the seller is responsible for clearing the goods for export, purchasing export licenses and paying any export fees.
The buyer is obligated to clear the goods for import at the country of destination and pay import duties and taxes.
Ship your cargo with a reliable freight forwarder
Join the world of digital logistics and get access to a vast network of vetted freight forwarders. At Eurosender, we collaborate with reliable cargo transport companies and international carriers and will connect you to the provider that best suits your needs. Our team of experts will act as an intermediary on your behalf to organise every detail of the shipping service.
Get in touch with an expert
NEED MORE INFORMATION?
CIF Incoterm definition and value meaning: FAQ
What is a CIF price?
The CIF price is the total price for goods delivered onboard the vessel at the port of destination, including insurance and transport, but before import duties and taxes. When a buyer is invoiced a CIF price, they must only arrange the unloading of the goods, clearing them for import and transporting them from the port of destination to their address.
Can I use the CIF 2020 Incoterm for shipping cargo by road?
No, following the specifications of the 2020 Incoterms update, CIF Incoterm can only be applied when transporting maritime cargo.
Can the buyer add additional coverage to the cargo when using CIF shipping terms?
Yes, the buyer is often advised to add more coverage when shipping under the CIF term. Although there were changes made to the CIF Incoterm in 2020 to make sure the seller provides sufficient or comprehensible insurance, it is recommended for both parties to discuss the CIF insurance coverage beforehand.
Does CIF Incoterm include shipping costs?
Yes, CIF costs and prices include the transporting and shipping costs to the buyer’s port of destination. When using the CIF Incoterm, the buyer is invoiced a CIF price (cost of the goods + transport fees + basic insurance).
Does the CIF Incoterm determine the ownership of the cargo?
No, Cost, Insurance, and Freight does not determine the ownership of the cargo. As the other Incoterms, the CIF Incoterm only determines which party pays for the freight transport, customs duties and insurance coverage. Although the risk of the cargo changes from the seller to the buyer when the goods are loaded on the vessel, the ownership of the goods has to be discussed in the trade contract.
When should I use Cost Insurance and Freight?
Cost, Insurance, and Freight is a common Incoterm for buyers that do not have a lot of experience in international trade. Because the seller is responsible for arranging the transport, insurance and customs on their end, the CIF Incoterm is a good option for traders who want a simple trade agreement. On the other hand, the buyer must arrange the unloading, customs and transport on their end, which means they can arrange the lowest price for domestic shipping.